Personal Income And Consumer Spending Both Inch Up In March - April 29, 2013

Income levels rose last month, albeit less than generally forecast, while spending pushed higher, and did so by a little more than forecast. On the whole, this was a mixed pair of reports that does little to change the overall economic picture as we move more deeply into the spring.

Specifically, the Commerce Department reported that personal income rose by 0.2% last month, which was about half the expected increase, and well short of the 1.1% gain tallied in February. By comparison, income dropped precipitously in January, falling by 3.6% that month as higher taxes, headlined by the end of the payroll tax holiday, pressed incomes lower.

At the same time, Americans continue to spend, with outlays rising by 0.2% more in March than in February. Spending in February, by comparison, had been up 0.7%. Expenditures had risen by 0.3% in January. So, the public continues to spend even though income levels are mixed, at best.

The good news in all this is that consumers are continuing to spend, and that promises to help keep the economy in forward gear. Actually, given the increases, albeit modest ones, in inflation, the sharp rise in Social Security taxes, and the troubled employment outlook, the uneven increase in spending so far this year is most encouraging.

In fact, data issued on Friday, which noted that the nation's economy had expanded by a modest 2.5% in the first quarter, overall, also indicated that the consumer spending component had risen by 3.2% during the quarter--the biggest jump in two years. Helping spending, in general, has been a decline in gasoline prices. Also, rising home prices and increases in the stock market have helped to restore personal wealth and a feeling of well being. That is always a good omen for spending.

That said, spending did tend to weaken at the end of the first quarter, as retail spending showed a decline of 0.4% in March. Also, as far as the spending went, a good chunk of it was on utilities, which cannot be thought of as representing an example of any improvement in sentiment.

As noted, though, the bright spot in all this was the surprising gain in incomes last month, which augur well for the economy going forward. Our sense is that should we see some better job growth data going forward, the income stream likely would strengthen further in the months ahead.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.